Liquidity constraint, LPG stoves and charcoal consumption: Evidence from a randomised controlled trial in Tanzania

A significant proportion of households in urban parts of Sub-Saharan Africa (SSA) use charcoal as their main source of cooking energy. In the urban parts of Tanzania - the country on which we focus in this paper - the proportion of households that use charcoal to meet their main cooking needs has increased from 47 percent in 2001 to 71 percent in 2007, and Dar es Salaam city alone consumes 500,000 tonnes of charcoal, half of the total annual charcoal consumption of the country.

On the other hand, many SSA countries have been experiencing economic growth which resulted in increased income and living standard in urban areas. The fact that charcoal consumption has been increasing with increasing income is contrary to the predictions of the "energy ladder hypothesis'', which has been the key theory in explaining energy transition in developing and emerging countries. This theory postulates that households consume biomass fuels such as fuelwood and charcoal at lower levels of income and switch to modern fuels such as kerosene, natural gas, and electricity as their income increases.

In this project, we use a novel randomised controlled trial (RCT) to shed light on the key factors that induce households in urban areas of Africa to shift from charcoal to Liquified Petrolium Gas (LPG). We specifically investigate if the high-start up cost of modern cooking appliances is the key factor that hinders transition of households from biomass energy to clean energy in urban Africa. In collaboration with a local micro-finance institution, we randomly assigned households into a subsidy treatment and a credit treatment, which included different repayment arrangements.